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Suncorp spooks market with lower payout

Clancy Yeates

Suncorp shares have slumped after the insurer paid shareholders a lower share of profits than expected, as it sets aside capital to shield itself from claims caused by ex-Tropical Cyclone Oswald.

Buoyant financial market conditions and lower insurance claims from natural disasters lifted Suncorp’s profits by almost half, to $574 million profit in the six months to December, it said today.

It declared a fully franked interim dividend of 25 cents, an increase of 25 per cent on the previous period.

However, the dividend payment amounted to 55.7 per cent of its profits, shy of its full-year dividend payout ratio of 60 to 80 per cent.

Suncorp was also hit by an after-tax loss of $140 million in its ‘‘non-core’’ bank, which houses a series of bad commercial property loans.

In early afternoon trade Suncorp shares had lost 3.7 per cent, or 43.5 cents, to $11.24, as the overall market rose.

The chief executive, Patrick Snowball, said the board was being conservative after the effect of Oswald, which is expected to cost the business between $200 million and $220 million in claims.

Floods and bushfires have cost the business $417 million this year so far, which is less than its allowance of $520 million for 2012-13.

‘‘I recognise that the payout ratio is below our full-year target range,’’ Mr Snowball told analysts. ‘‘But as you are by now aware we are always conservative at the half-year, and ex-Tropical Cyclone Oswald was a reminder of why our interim dividend might still be slightly lower than you’d otherwise expect given the strong operating performance in the first half and also the strong balance sheet.’’

He said the board was committed to returning 60 to 80 per cent of profits to shareholders as dividends. Weather permitting, it planned to provide a ‘‘healthy’’ payout at the end the year.

Despite the negative market reaction, Suncorp’s core insurance business posted a solid result after being battered by market volatility and claims from natural disasters in recent years.

The company’s insurance trading result - a reflection of profits on its underlying insurance business – was up sharply to 18.6 per cent, from 12.8 per cent.

Bell Potter analsyt T S Lim said the market had been spooked by the lower dividend but stressed that the company remained committed to paying out higher dividends later in the year.

"This is what always happens. They always have a lower pay-out in the first half," Mr Lim said.

Mr Snowball said the company would go to the reinsurance market in the next few months, and he expected premiums to rise more gradually than the rapid growth experienced in recent years.

‘‘We are very aware rates might go up, but I don’t think they will go up as much as they have,’’ Mr Snowball said.